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I think I'm going to have to describe my system here to make myself
clear.
prosys@xxxxxxxxxxxxxxxx wrote:
[concering placing an order to buy an option conditional on the
underlying price]
>Subject: About TS6 order entry & auto-execution
>
>Insert the option as data1 and the futures as data2......
>if close of data2 > 290 then buy("EPutL") at 1.40 limit;
TS would have no way of knowing what data1 is supposed to be.
Suppose it needed to test against the price of 280 instead of 290?
Then data1 would have to be the 280 put option contract, not the 290
put option contract. Each strike and expiration month represents
a different option contract. Any single futures contract can have
dozens of options contracts associated with it.
Maybe I should describe my trading system, and solicit suggestions
how to implement it in Tradestation. Currently I use it from Excel.
It is a good strategy that has worked well for me in the past, but
requires attention during the day that I cannot give due to my job
and associated travel requirements.
-------------------------------------------------------------------
MY NAKED OPTION SYSTEM - developed by Alex Matulich and Steve Beamer
(this is a much-evolved version of the system described
in meticulous detail in my Excel file available at
http://unicorn.us.com/pub/optsel2a.zip )
Entry
-----
1. Every day, about 9,000 separate options contracts are traded in
the futures markets, far more than the number of futures contracts.
Before market opening, I obtain from optionetics.com a list of ALL
the previous day's bid/ask quotes, for ALL options.
2. I determine the most likely out-of-the-money candidates to
sell naked. First I filter out the in-the-money options. Then
I filter the list for options that have between 7 and 28 days
until expiration. Then I look for cases where the underlying is
trending away from the strike price. Finally, I rank the list by
scoring each option in terms of annualized return and probability of
expiring worthless.
3. Every day, I place orders to sell (limit or better) the
top-ranked 3 or 4 options at the bid price adjusted down by an
appropriate 16-hour time decay. Upon each fill, I set aside enough
margin to enter a position in the underlying futures contract. I
do this so I don't keep selling options until I have so many short
positions I can't cover them.
4. Upon each fill, place a GTC order to go long the underlying
futures contract at the call option strike price, or go short the
underlying at the put option strike price.
5. Also, place a "conditional order" to buy a put (if I sold
a call) or buy a call (if I sold a put) in the event step 4 is
executed. Steps 4 and 5 must occur as near to simultaneously as
possible.
6. Repeat steps 1-5 every day until all margin is allocated
according to step 3.
Exit
----
Profitable exit: If the underlying never crosses the option strike
price, the option will expire worthless, and I keep the proceeds
from the sale. Upon expiration I cancel the GTC underlying order,
and the conditional long option order.
Nonprofitable exit: If steps 4 and 5 above were executed, do
nothing, wait for expiration. Loss should be minimized, because as
soon as steps 4 and 5 are executed, I am simultaneously long and
short the same futures contract (where one position is a synthetic
contract made of the long and short option). At option expiration
all positions cancel out. The only loss should be slippage and
commission.
-------------------------------------------------------------------
That's it. This is a system that works, giving a decent consistent
return (30% or so). I haven't traded it in a few years because it
wasn't automated enough for my personal time constraints, but I want
to start back up. At the moment steps 1 and 2 above are trivial to
accomplish in Excel -- I can't imagine how I would get TS to rank
over 9,000 option contracts. Steps 3 and 4 are simply orders placed
with the broker.
Step 5 is what I'm having trouble with. Assuming steps 1-4 could
be implemented in TS, step 5 would probably be simple. However, TS
may not be the right tool for steps 1-4. In which case, I need some
automatic way to implement step 5.
Simply being able to place a conditional order like that with
an internet broker would be GREAT! Do any such brokers exist?
This doesn't HAVE to be in TS; I just need to be able to place
that conditional order. TS can do such orders but not with the
flexibility required by this strategy.
This is an EOD system, but the loss management part (when the
underlying approaches the strike price) requires real-time
monitoring of arbitrary options contracts, not some fixed contract
assigned to data1.
Any advice?
>> -----Original Message-----
>> From: Alex Matulich [mailto:alex@xxxxxxxxxxxxxx]
>> Sent: Monday, May 13, 2002 4:47 PM
>> To: omega-list@xxxxxxxxxx
>> Subject: About TS6 order entry & auto-execution
>>
>>
>> I am looking around for a broker who will accept the following kind
>> of order:
>>
>> "When June Gold exceeds 290, Buy 1 June Gold Put option at the 290
>> strike, at 1.40 limit or better"
>>
>> This kind of order requires one of three things:
>>
>> 1. My constant attention throughout the day
>> 2. A full-service broker's constant attention
>> 3. Software that uses real-time data to execute the order when necessary
>>
>> #1 and #2 are not a viable option for me.
>>
>> The problem with #3 and TS6 is (correct me if I'm wrong), I'd need
>> to have the order encoded in some sort of strategy.
>>
>> However, my particular strategy cannot be implemented in
>> EasyLanguage because the input data source is variable (not just one
>> contract, but potentially dozens of different option contracts per
>> futures contract).
>>
>> Does any online broker or trading software allow me to enter an
>> arbitrary order such as I described, without a formulaic scripted
>> ELA rule?
--
,|___ Alex Matulich -- alex@xxxxxxxxxxxxxx
// +__> Director of Research and Development
// \
// __) Unicorn Research Corporation -- http://unicorn.us.com
|